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There was only one civil law decision released this week by the Court of Appeal. It involved the setting aside of an order granting summary judgment in the commercial leasing context where there was a finding of an oral agreement modifying the terms of the lease. In a rare move, the panel found that it could not substitute its decision for that of the motion judge, but rather than remit the matter back to the motion judge, it invited further written submissions to assist it in rendering a decision.

In September 2010, the parties entered into the lease of a historic building (the “Property”) to renovate and operate a restaurant. The Commencement Date for the lease and payment of rent was April 1, 2011. The agreement provided that if the landlord was of the opinion that it would be unable to deliver possession of all of the leased premises before the expiration of 6 months after the Commencement Date, the landlord would have the right to terminate the lease upon written notice and neither party would have any liability to the other.

Morguard intended to construct a commercial high-rise on its property adjacent to the Property and was seeking an anchor tenant, or else construction would not proceed. There was a risk that construction of the project would cause significant disruptions to the Property. Morguard subsequently identified a potential anchor tenant that was going through a number of difficulties.

As a result, the parties orally agreed to postpone the Commencement Date for “at least a year”. They then entered into negotiations for a Lease Amendment Agreement and Morguard secured its anchor tenant in October 2011. The negotiations continued until Morguard advised in writing that it was terminating the negotiations in December 2011 pursuant to the original agreement.

The motion judge granted summary judgment in favour of the tenant and found that the parties had made an oral agreement in February 2011 to extend the Commencement Date either for one year if no anchor tenant was secured, or for three years if one was secured by Morguard. In the motion judge’s view, this meant that once Morguard had secured an anchor tenant, the Commencement Date would be extended to 2014. He also found that there were acts of part performance which took the oral agreement outside the Statute of Frauds. He finally found that, having agreed to extend the Commencement Date until 2014, Morguard’s termination of the initial agreement was in bad faith, as it could not have known in 2011 that it would be unable to deliver possession within six months of the new Commencement Date.

Issues:

Should the motion judge’s decision granting summary judgment be set aside?

Should the court determine the issues of fact and law or send the matter back for a new summary judgment motion?

Holding:

Appeal allowed. Further written submissions invited to allow Court of Appeal to determine result on the basis of an oral agreement having been made.

Reasoning:

Yes. The motion judge’s decision was not based on the evidence. While there was evidence that the parties agreed to extend the Commencement Date for “at least a year”, there was no evidence that the extension would be one year if Morguard did not secure an anchor tenant and three years if it did. This finding was also the basis for the finding of bad faith.

The respondent argued that the finding of bad faith could be upheld as the motion judge found that Morguard’s motive was because it no longer sought an amended lease agreement. The court rejected this argument. Moreover, the motion judge erred by grounding his legal decision on the doctrine of part performance when it was not pleaded or argued before him. Finally, the motion judge did not refer to the leading case, Bhasin v. Hrynew, the result being that he was not able to analyze the legal issue based on the most recent SCC articulation of the doctrine.

The court held it would not be able to determine the issues of fact and law, but rather than send the matter back to the court below, it permitted the parties to make written submissions on the proper legal result based on the factual finding of the motion judge that the parties had made an oral agreement in February 2011 to extend the Commencement Date for “at least a year.”

Neither side submitted a clear and cogent analysis of the legal effect on the lease of the acts and agreements and it would thus be inappropriate for the court to make its own findings without receiving further submissions.

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Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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